Nowell Company is experimenting with comprehensive-liability income tax allocation called for in SFAS No. 109 but, in addition, they are employing discounting. No temporary differences exist up to 2000. Shown here is a schedule of tax depreciation, book depreciation, and income before depreciation.

The tax rate is 45 percent. The discount rate is 8 percent.
Required:
Prepare income tax entries for2005, 2006, 2007, and 2008discounting deferred tax liabilities at 8 percent. Why would using discounting be a stronger asset-liability orientation than not discounting deferred tax liabilities?

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Book Income Tax Depreciation Year Depreciation Before Al A2 A1 A2 Depreciation $300,000 2005 S50,000 2006 40,000 S60,000 35,000 S50,000 400,000 2007 30,000 50,000 35,000 50,000 420,000 2008 20,000 40,000 35,000 50,000 440,000 S35,000